The Buck Stops Here

Tuesday, October 28, 2008

Weight Loss Pill

Megan McArdle points to a John Tierney article about a new medical study about "a new appetite-suppressing drug, tesofensine, [that] was twice as effective as existing drugs in helping people lose weight." The assumption seems to be that a weight-loss drug would produce the health benefits of losing weight.

Count me as dubious. I'd bet that if you have an unhealthy diet and an unduly low amount of exercise, losing weight via a pill would not produce the same benefits (or any benefits at all) as if you changed your diet/exercise habits. By analogy, statins work very well at lowering cholesterol, but they're not nearly as good at reducing mortality (and some combinations might even contribute to cancer). According to a Business Week article:

Wright had a surprise when he looked at the data for the majority of patients, like Winn, who don't have heart disease. He found no benefit in people over the age of 65, no matter how much their cholesterol declines, and no benefit in women of any age. He did see a small reduction in the number of heart attacks for middle-aged men taking statins in clinical trials. But even for these men, there was no overall reduction in total deaths or illnesses requiring hospitalization—despite big reductions in "bad" cholesterol.

My guess is that if your diet and exercise habits are unhealthy, taking a pill won't compensate for it, regardless of whether the pill causes changes that are sometimes a proxy for better health (such as low cholesterol or less weight).

A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.

Wednesday, October 08, 2008

Charles Murray on Education

Charles Murray has a provocative column summarizing a recent book on why college is overvalued. As Murray puts it, hardly anyone would think the following is a good system, if designed from scratch:

First, we will set up a single goal to represent educational success, which will take four years to achieve no matter what is being taught. We will attach an economic reward to it that often has nothing to do with what has been learned. We will urge large numbers of people who do not possess adequate ability to try to achieve the goal, wait until they have spent a lot of time and money, and then deny it to them. We will stigmatize everyone who doesn’t meet the goal. We will call the goal a “BA.”

In Murray's view, many if not most occupations do not really require 4 years of specialized study, and many people are neither inclined nor interested in 4 years of generalized education. Instead, it would be a better world if more businesses and occupations relied on certification tests that anyone could take, whether or not they had been certified by an official university.

Pedro Carneiro is the first respondent. Unfortunately, I suspect that much of his response is beside the point. From the start, Carneiro characterizes Murray as having argued that "for most people, completing a BA is a bad investment." But I don't see Murray as making that point at all. In fact, Murray began his essay with the explicit disclaimer that he was "not denying that that possession of a BA is statistically associated with higher income across the life span."

Carneiro then spends the majority of his essay explaining that people really do get positive economic returns from having gone to college. But this misses the framing issue that Murray hints at. In an era when fewer people went to college, as Murray points out, it was perfectly respectable to enter the workforce as a high school graduate. Now, to do so marks you as being in the bottom 20% or 30%. Thus, the issue should be framed as follows: it’s not that college has a high premium, it’s that failing to go to college has a stiff penalty.

To amplify on an analogy from Thomas Sowell, imagine that you are sitting in a football stadium in a crowd of 70,000 people, and that most of them stand up. The vast majority of people who are standing can see the game, while the few people still sitting down can't see anything other than the rear of the person in front of them. Carniero might say that there's a "premium" to standing up in a stadium rather than sitting down, and that it should therefore be our social policy to encourage everyone in all stadiums to stand up at all times. Murray, however, would say that sitting down creates a huge penalty when everyone else is standing up, and that the football game might be more enjoyable all around if most people would collectively sit down and take a rest.

Thus, it's wrong to ask rhetorically:

Do we really think that social pressure to get a BA, and misinformation about the value of a BA, will induce generations of youth (and their parents!) to systematically engage in bad education decisions? Why would they be doing that over and over again, if it was such a bad investment?

College isn't necessarily a bad investment for any given individual, any more than standing up at the football game is a bad investment when everyone else is standing up (and when sitting down means that you miss the game entirely). That conclusion says nothing about the overall rationality of a system in which everyone wastes their energy standing up even when they are all tired and would individually rather sit down.

Thus, Murray's point is systemic, not individual: regardless of whether any given individual benefits from going to college, it’s not good to have a world in which failing to go to college has a high penalty. There are many people out there who don't particularly care for classroom work, and it’s unjust to force them to spend several years and tuition money getting a degree just so they can have a credential to enter the workforce. In any event, given that Murray is basically identifying a collective action problem here, it's not responsive for Carneiro to point out that each individual's behavior is rational.